Wednesday, March 25, 2009
Tax brackets, not NCAA brackets
QUESTION: Mr. President, are you — thank you. Thank you, Mr. President. Are you reconsidering your plan to cut the interest rate deduction for mortgages and for charities? And do you regret having proposed that in the first place?
OBAMA: No, I think it’s — I think it’s the right thing to do, where we’ve got to make some difficult choices. Here’s what we did with respect to tax policy. What we said was that, over the last decade, the average worker, the average family have seen their wages and incomes flat. Even in times where supposedly we were in the middle of an economic boom, as a practical matter, their incomes didn’t go up. And so, well, we said, “Let’s give them a tax cut. Let’s give them some relief, some help, 95 percent of American families.” Now, for the top 5 percent, they’re the ones who typically saw huge gains in their income. I — I fall in that category. And what we’ve said is, for those folks, let’s not renew the Bush tax cuts, so let’s go back to the rates that existed back in — during the Clinton era, when wealthy people were still wealthy and doing just fine, and let’s look at the — the level at which people can itemize their deductions. And what we’ve said is: Let’s go back to the rate that existed under Ronald Reagan. People are still going to be able to make charitable contributions. It just means, if you give $100 and you’re in this tax bracket, at a certain point, instead of being able to write off 36 percent or 39 percent, you’re writing off 28 percent. Now, if it’s really a charitable contribution, I’m assuming that that shouldn’t be the determining factor as to whether you’re giving that $100 to the homeless shelter down the street. And so this provision would affect about 1 percent of the American people. They would still get deductions. It’s just that they wouldn’t be able to write off 39 percent. In that sense, what it would do is it would equalize — when I give $100, I’d get the same amount of deduction as when some — a bus driver who’s making $50,000 a year, or $40,000 a year, gives that same $100. Right now, he gets 28 percent — he gets to write off 28 percent. I get to write off 39 percent. I don’t think that’s fair. So I think this was a good idea. I think it is a realistic way for us to raise some revenue from people who’ve benefited enormously over the last several years. It’s not going to cripple them. They’ll still be well-to-do. And, you know, ultimately, if we’re going to tackle the serious problems that we’ve got, then, in some cases, those who are more fortunate are going to have to pay a little bit more.
There has been much discussion about what constitutes “fair” with respect to tax rates and charitable giving and deductions, including a recent post by TigerHawk. Me, I don’t see how it is unfair that if someone is in a higher marginal tax bracket, the percentage effect of their allowable deductions is somewhat greater than a lower bracket taxpayer. Admittedly subjective on my part, it just seems as though there should be symmetry in that respect, but maybe that’s just how my mind works.
My point here is that I am pretty sure that the hypothetical bus driver making $50,000 or $40,000 per year that President Obama cites would actually be in the 25% bracket if the driver is single, or the 15% bracket if the driver is married and filing jointly, and not the 28% bracket, unless he is planning to propose raising marginal rates for taxpayers in those brackets, as he implied will be the case with his own marginal rate of 39 (I think he meant 39.6%). Since using the lower figures actually would have made his point stronger by emphasizing a larger difference (assuming you like his overall approach to “fairness”), I am surprised and a bit disappointed that President Obama did not have mastery of those details. He could have used the time he spent marking up his NCAA brackets on TV to take a quick glance at the tax tables.
I do admire the way President Obama seizes the moral high ground: “Now, if it’s really a charitable contribution, I’m assuming that that shouldn’t be the determining factor as to whether you’re giving that $100 to the homeless shelter down the street.” True, that. President Obama obviously has in mind Matthew 6:1-3: “Be careful not to do your acts of righteousness before men, to be seen by them. If you do, you will have no reward from your Father in heaven. So when you give to the needy, do not announce it with trumpets, as the hypocrites do in the synagogues and on the streets, to be honored by men. I tell you the truth, they have received their reward in full. But when you give to the needy, do not let your left hand know what your right hand is doing, so that your giving may be in secret. Then your Father, who sees what is done in secret, will reward you.” Setting aside this wonderful passage of scripture for the moment, it is quite hard to believe that the POTUS thinks that a change in the tax code as he proposes will not have an adverse effect on charitable giving, though he stated that on follow up. It is particularly hard to believe when one considers that it is very likely that the executives and/or board members (a good number of whom must have voted for him and perhaps contributed to his campaign) of many significant charitable entities must have communicated their objections to the reduced deduction.
To his credit, President Obama also stated that the best thing he could do to increase levels of charitable giving was to help the economy grow. Donating appreciated securities has for many years been one of the more efficient means of making a large charitable gift (no long term capital gains tax is ever paid on the appreciation), and securities generally rise in value when the economy grows.
Update: Link fixed
12 Comments:
By 
, at
Thu Mar 26, 07:25:00 AM:
Contrary to Mr. Obama's high-mindedness, we mere mortals would love to give at a much greater rate than we already do, but we have other obligations; as such we give what we can. There is irrefutable evidence that shows a direct corelation between higher taxes and lower giving and vice versa. Some of the biggest winners on the Bush Tax cuts were charities.
One of my biggest objections to candidate Obama was the fact that he never held a real job until he became a U.S. Senator (even that is somewhat specious...) But within two years of his first real job, he was vying for the next one (President.) His lack of experience and his somewhat "Holden Caufield-like" ideals are starting to not just shine through, but destructively laser beam into reality.
By , at
Thu Mar 26, 08:01:00 AM:
" Now, if it’s really a charitable contribution "....This charlatan whose ethics and morals are more malleable than a cube of jello, this pompous ass whose charitable donations can be politly described as miserly and stingy, worse so his vice-president, seeks to judge others about their charity ? He's such an ignorant ass.
By , at
Thu Mar 26, 09:17:00 AM:
I wonder if any steps to reduce charitable donations are not an underhanded way to increase people-in-need’s dependence on Government which will step in to replace charitable donations. Is this one more step towards the pervasive welfare state and socialist paradise?
Luc
By 
Georg Felis, at
Thu Mar 26, 10:18:00 AM:
How about this for a question: Thank you… Yes, thank you Mr. President. How can you propose tax increases on charitable giving that will reduce the assistance provided to our most vulnerable citizens in the time of their greatest need?
Change? Change please? I'm Hoping for some Change?
By , at
Thu Mar 26, 10:41:00 AM:
Obama packs lots of ex=Presidents into that non-response response, so I'll suggest we go back to the income tax arrangements in force under President Lincoln. What, he doesn't admire Lincoln anymore?
By Elise, at
Thu Mar 26, 12:07:00 PM:
Good luck with this. I tried making the flat tax argument at Conor Clarke’s Atlantic blog 3 weeks ago and it didn’t fly. I’ve decided the problem is that the flat tax point addresses the argument Obama and Orszag are making publicly rather than the real reasons behind the deduction limitation.
The Obama-Orszag argument is that deductions are “regressive” and thus “unfair”. (Is it just me or do they sound kind of whiny? And is it just me or does this strike anyone else as the kind of argument most college sophmores in an all-night bull session would find utterly compelling?) This is not, however, the real reason for the charitable deduction limitation.
The real reasons for the deduction limitation are two-fold. First, Obama wants the extra money. I said in my comment at Clarke’s blog:
Orszag is attempting to make it about fairness - probably because he thinks that will make the idea more palatable to the public. Bottom line, though, capping the deduction for charitable giving is all about pragmatism. The Obama administration wants to collect more money and the rich (however you want to define them) have the most money. It's the Willie Sutton theory of taxation: You tax the rich because that's where the money is.
I still think that’s most of the reason for capping the charitable deduction but after reading Clarke’s latest post on the issue it’s clear there’s another reason for it: Individual giving to charity is inferior to government funding of worthy endeavours. Therefore the government should not be “subsidizing” (his word, not mine) such giving through the tax code. The problem with this argument, of course, is that it justifies getting rid of the charitable deduction entirely rather than targeting rich people’s giving. There’s no more reason for the government to “subsidize” a bus driver’s charity at 15% or 25% than for it to "subsidize" an AIG executive’s charity at 35%, soon to be 39.6%. (At least this is a problem for Charitable Cap Supporters. I actually favor getting rid of all deductions across all tax brackets.)
I do think that there are a lot of people like Clarke who genuinely believe “deductions are regressive” and “government shouldn’t subsidize charitable giving”. I find them incomprehensible but sincere. Obama and Orszag, though, know exactly what they’re trying to accomplish - getting more money and making government more powerful - and are using the “fairness” argument quite cynically. (Frankly I’d rather believe that than believe they are unable to grasp the inevitable mathematical consequences of a progressive tax structure.) This helps explain why - as Morrissey put it - “Obama didn’t realize the consequences of his argument.” His argument has nothing to do with the real reasons behind the charitable deduction limitation and there’s no way a flat tax addresses those real reasons.
(BTW, the HotAir link is bad. Try this.)
By Escort81, at
Thu Mar 26, 02:26:00 PM:
Thanks, Elise, for the heads up about the link. It was my first time using that software, and I did not account for the HTML prefix that automatically gets loaded in. I think it is fixed.
I agree with much of what you say, but I wonder if President Obama really believes he can have his cake and eat it, too -- that the "top 1%" and "wealthy," the majortity of whom voted for him, will continue to give to charity at the same levels, and also pay the extra 4.9% marginal rate, even with the limits on deductions. The next bracket lower might get a bit more dodgy for him -- folks who are still doing fine, but might well reduce their giving if they feel squeezed.
The mindset of what is "fair" is truly fascinating.
By , at
Thu Mar 26, 02:34:00 PM:
The mindset of what is "fair" is truly fascinating.
Outside of commercial application thsi is a word I hope will someday be banned from common usage. Has there ever been a concept born of the mind of man more misused?
My parents taught me at an early age to "worry not about what the other guy makes, only about what I make." That healthy instruction leads to less stress, less envy and more satisfaction- I recommend it wholeheartedly as a life lesson.
By Elise, at
Thu Mar 26, 02:52:00 PM:
I wonder if President Obama really believes he can have his cake and eat it, too -- that the "top 1%" and "wealthy," the majortity of whom voted for him, will continue to give to charity at the same levels, and also pay the extra 4.9% marginal rate, even with the limits on deductions
It's an interesting question. Part of me thinks Obama doesn't care whether the "wealthy" keep giving to charity. It's a matter of total indifference to him.
Part of me - and this part is gaining ground - believes Obama is missing something basic. I'm not sure what it is: a coherent world view, an understanding of cause and effect, an ability to perceive data that contradicts his treasured beliefs, the ability to distinguish between wish and reality. Whatever that missing something is, I sometimes fear that Obama is perfectly capable of saying, "I believe it's right that people should continue to give to charity no matter how much I tax them and because I believe it, it will happen." I'd actually rather believe he's a Machiavellian socialist out to destroy the United States by applying the Alinsky principles to his governance. It's far less scary.
By , at
Fri Mar 27, 11:56:00 AM:
The obvious is starting to become clear, even to the obtuse:
"The point was that Obama was promising so many things that to pay for them he would eventually have to raise taxes on people making far less than $250,000. Look out, McCain warned -- someday he'll come after you.
And now that's where we appear to be headed. At some point, Obama will likely have to bow to those in his party who say he must raise taxes if he wants to pay for health care and other expensive initiatives.
Some skeptics believe that was the plan all along. McCain wouldn't go that far, but when I brought up the idea, he did sound a bit suspicious. "Well, you set up a situation that puts spending at an unprecedented amount of GDP, and then you turn around and say, 'Of course we're going to have to raise taxes to pay for this,'" McCain told me. "I'm not saying it was their plan, but it certainly was inevitable."
By , at
Fri Mar 27, 12:36:00 PM:
Perhaps rather than unintentially supporting a flat tax, Obama is simply saying that it is unfair for one person to earn more than another. Period. It wouldn't suprise me.
By JPMcT, at
Sun Mar 29, 01:15:00 PM:
If you consider tax payment in the US as a Power Law curve with a far more leftward skew than even the 80/20 rule, then Obama's drivel about reducing taxes on "95% of Americans" while slamming it to the bulk of us who are actually on the left side of the curve is graphically illustrated as the ruse that it actually is.
Add to that the alacrity with which Congress passed a 90% tax rate on the AIG bonuses...and only a fool would not extrapolate exactly how close we all are to truly confiscatory tax rates.
One can only hope that the long, low end of the right side of the taxpayer curve has a sudden moment of clarity when they realize that their taxes are going to UP when the Bush tax cuts expire, UP when cap and trade is unleashed, UP when globalization of stimulus ever occurs and UP when the inevitable inflation starts to spiral.
Can ANYBODY name ONE GOOD IDEA Obama has had since Janulary???
Just ONE!
